CPI Aerostructures Inc (CVU) 2010 Q1 法說會逐字稿

Good day, everyone, and welcome to the CPI Aero first-quarter 2010 conference call. At this time I would like to inform you that this conference is being recorded and that all participants are currently in a listen-only mode.

I will now turn the conference over to Mr. Fred. Please go ahead.

Thank you, Sarah. First let me apologize to you all; I have a very heavy New York cold from the changes in our weather. So if every once in a while I sound like a frog, I apologize.

With that note, good morning and thank you all for joining us for our first-quarter 2010 conference call. If you need a copy of the press release issued this morning, please contact Lena Cati of The Equity Group at 212-836-9611, and she will fax or e-mail a copy to you.

Also, if you would like to listen to this call again, you can hear a replay on our website's investor relations section in about an hour at www.CPIAero.com.

Before we get started I want to remind investors that this conference call will contain forward-looking statements which involve known and unknown risks, uncertainties, and other factors that may cause actual results to be materially different from projected results.

Included in these risks are the government's ability to terminate their contracts with us at any time; the government's ability to reduce or modify its contracts if its requirements or budgetary constraints change; the government's right to suspend or bar us from doing business with them; as well as competition in the bidding process of both government and subcontracting contracts. Our subcontracting customers also have the ability to terminate their contracts with us if we fail to meet the requirements of those contracts or if their customer reduces or modifies its contract to them due to budgetary constraints.

Given these uncertainties, listeners are cautioned not to place undue reliance on any forward-looking statements contained in this conference call. Additional information concerning these and other risks can be found in our filings with the SEC.

As has been the case in previous first-quarter conference calls, I will provide our new listeners with a brief overview of CPI Aero and our activities. Based on Long Island, CPI Aero is a world-class manufacturer of aerospace structural parts and assemblies.

We are a prime contractor to the US Department of Defense, and during the last few years we have substantially grown our business to become a subcontractor to some of the largest US aerospace and defense contractors such as Northrop Grumman, Boeing, Sikorsky, Spirit AeroSystems, Lockheed Martin, and Vought Aircraft Systems.

Since its inception in 1980, CPI Aero has focused on the production of aerospace structural parts and assemblies and in developing the required skills and expertise to produce the highest quality products possible. We have carved out for ourselves a niche within the aerospace market and have become one of the country's leading suppliers of structural spares for vintage and out-of-production aircraft, and now assemblies for new production planes.

Typical assemblies produced by CPI Aero are skin panels, leading edges, flight control surfaces, engine components, cowl doors, wingtips, outer wing panels, nacelles, and inlet assemblies for military aircraft such as the C-5A Galaxy, T-38 Talon, C-130 Hercules, A-10 Thunderbolt, UH-60 Black Hawk helicopter, E-2D Hawkeye, the E-3 Sentry, and the B-1 Bomber. And various structural assemblies for commercial aircraft such as the Gulfstream G650 and the S-92 helicopter.

So with that prelude I will now hand the call over to Vince Palazzolo, our CFO, so he can walk you through the financial statement details. Then I will comment on the current business environment, our guidance for the current year and 2011, and then briefly wrap things up and open the call to questions. Vince?

Thank you, Ed. As reported in this morning's press release, comparing the first quarter of 2010 to the first quarter of 2009, revenue increased 14% to $11,005,529 from $9,691,236. Gross margin was 25% as compared to 21%.

Pretax income increased 58% to $1,303,815 compared to $826,921. Net income increased 58% to $860,815 or $0.14 per diluted share, compared to $545,921 or $0.09 per diluted share.

Selling, general, and administrative expenses were approximately $1,445,000 or 13.1% of revenue, compared to approximately $1,236,000 or 12.7% of revenue. At this point let me hand the call back over to Ed for an overview of the business.

Thanks, Vince. As Vince just reported, the gross margin for the first quarter of 2010 was higher than that of the prior year's first quarter. We expect that there will still be quarterly ebbs and flows in our gross margin as our new programs progress further down the line. But we arrived at our 2010 guidance based on a 24% to 26% gross margin range and expect to end up in that range.

Longtime CPI investors have heard me say this before, but it bears repeating. It is always the case that in new development programs there are many, many changes in the design, engineering, and material requirements of the structure to be produced. Even when those design modifications are anticipated and accounted for, others occur that cause our Company to incur overtime and additional expense in order to meet customer delivery requirements and production standards.

This has been the case in all three of our major new programs. However, we anticipate that these excess costs will be recovered as we progress further along in the programs and that margins will end up in the range we forecast when we bid on these programs.

We are pleased to report that through all of this effort CPI has been successful in delivering on all three of our major programs -- the G650 leading edges for Spirit; the outer wing panel kits on Northrop Grumman E-2D Hawkeye; and various structural assemblies for the A-10 Warthog for Boeing.

New orders through March 31 of 2010 were approximately $5.5 million, up from $4.3 million this time last year. Additionally, during April we received a $10 million increase to our overall order from Boeing on the A-10 re-winging program.

The total award amount of all of our programs should increase significantly over the next two quarters as we expect to receive follow-on releases on some of our major programs, in addition to our belief that we will be awarded new work from a variety of sources. There is real business potential from the approximately $297 million of unawarded solicitations outstanding, once these programs are funded and/or awarded.

In the past several years our reputation has been elevated in our industry, thanks to our impressive list of customers, the success we have experienced on the important programs we are working on, and the exposure we have gotten and contacts we have made at various aerospace and defense institutional investment conferences.

We are now in the midst of establishing relationships with additional prime manufacturers, including other helicopter and business private jet companies who have come to recognize CPI Aero as a premier supplier of aircraft structure. Among the unawarded bids outstanding are contract opportunities with these potential customers. We look forward to reporting on our progress of turning solicitations with these prospects into awards and contracts in the future.

As previously announced, based on the visibility we currently have we project that 2010 revenue will be in the range of $48 million to $51 million, with resulting net income in the range of $4.3 million to $4.8 million. It is our expectation that our three major long-term production programs -- the A-10, the E-2D, and the G650 -- will be in full-scale production and generating consistently significant revenue during 2011.

We therefore project that 2011 revenue will be in the range of $78 million to $81 million, with the resulting net income in the range of $8.9 million to $9.5 million. Additionally using 2008 as our baseline, our 2011 guidance affirms our expectations for a three-year compounded annual growth rate for revenue in the range of 30% to 35%, with a resulting compound annual growth rate for net income in the range of 50% to 60%.

In early April we completed a registered direct offering and raised $3.5 million in net proceeds through the sale of 500,000 shares of our common stock. Through this offering we strengthened our financial position in preparation for continued growth and enhanced the potential liquidity of our stock.

CPI's future has never been brighter, and we will continue to get that message out into the investment community as often as possible. In keeping with that philosophy, on May 25 I will be presenting CPI at the B. Riley 11th Annual Investor Conference in Santa Monica, California. Some of you might remember that last year I also presented at this conference and the Company's story was extremely well-received.

On that same day, May 25, Vince and Doug McCrosson, our COO, will present CPI at the Stephens Spring Investor Conference during their Aerospace and Defense Day. Once again this is a conference we have presented at previously and is one of the finer A&D forums available.

Lastly, I will be presenting CPI at the Noble Financial Capital Markets Sixth Annual Equity Conference in their Microcap Showcase to be held June 7 and 8. When CPI's presentation date and time is known for this event, we will release that information so you can participate in the webcast.

The same holds true for the two other conferences I mentioned. Once our presentation times are finalized, we will make that information available to you.

Our annual meeting is scheduled for June 15 in New York City, and we hope to see some of you there.

Before closing I would like to thank all of our shareholders for your continued support of CPI Aero and to assure you that your management team and your Board of Directors are working diligently to continue this profitable growth and reach our full potential as the world's premier small business supplier of aircraft structure.

I would be remiss if I didn't once again thank the CPI management team for sharing my vision of where we can take this Company, but more importantly, for making it happen. I would also like to thank all of the employees of CPI Aero for executing on that vision and being an integral part in winning such impressive awards as the ones I've mentioned earlier.

I look forward to the future of this Company with great eagerness and anticipation of now executing on these contracts and then attaining new ones due to the quality of our work. At this point I would like to open the floor to questions. Sarah, can you allow callers to place questions now, please?

(Operator Instructions) Michael Potter, Monarch Capital Group.

Congratulations on another very good quarter.

Thanks.

Just a quick question, all right? You guys did the equity offering to support our strong growth. Will that open up our credit line as well?

Well, what we did -- when we say we received net, we then paid off our credit line completely. So we now have cash in the bank and a fully open credit line.

Actually the question is, will our credit line be expanded now that we have more equity and that we're showing stronger growth?

That is certainly a possibility. It is something we are looking into, absolutely. Okay?

Thanks.

At this time there are no further questions.

Okay. If that is the case, then I thank you all for joining the call and look forward to speaking to you again in about three months. Thank you.

This concludes today's conference call. You may now disconnect.